IMF says Jamaica continues to perform well but points to need for supply-side reforms to drive growth, investments

The International Monetary Fund (IMF) says Jamaica continues to perform impressively under the current stand-by arrangement but is recommending that the government move apace with implementing supply-side reforms to stimulate greater levels of private sector investments and economic growth.

IMF Deputy Managing Director Tao Zhang, who served as the acting chair of the board that just concluded the fourth review of Jamaica's performance, said the island's macroeconomic stability was entrenched, with reduced public debt and improving social and unemployment indicators. However, he said growth remained subdued.

“Against this backdrop, supply-side reforms to facilitate private sector investment are needed to achieve higher, sustained growth and job creation,” the IMF deputy head advised.

Zhang said the Jamaican government also needed to move decisively in modernising the operations of the Bank of Jamaica with full-fledged inflation-targeting.

He acknowledged that the recent tabling in Parliament of legislation to upgrade the BoJ Act was an important step toward the eventual shift toward full-fledged inflation targeting.

“Maintaining exchange rate flexibility and limiting FX (foreign exchange) sales during periods of disorderly market conditions is necessary to support an inflation targeting framework. The authorities are also planning to accelerate FX market development and the building of technical capacity in monetary operations,” he said.

Zhang said the Central Bank remained committed to maintaining inflation within the 4-6 per cent target range over the medium term.

The IMF executive board, following the completion of the fourth review, emphasised that the structural impediments needed to be quickly addressed to foster private capital formation and accelerate growth and job creation.

It also called on the government to ensure that the public sector wage bill is continuously reduced.

“Reduced wage outlays will allow the government to reprioritise public spending toward security, social assistance, and growth-enhancing capital expenditure," Zhang said.

“Achieving such a wage bill reduction will require a broad overhaul of the public compensation and allowance system and a reduction in the size of the government workforce,” he added.

Zhang recommended that the financial sector should be further strengthened in line with the recommendations from the accompanying Financial Sector Stability Assessment.

“Priority should be placed on enhancing coordination, data collection, monitoring, and strengthening technical capacity of the financial regulators. Improving consolidated and risk-based supervision are important reform areas," he said, adding “addressing impediments that constrain access to finance would help support private-sector investment."

- CMC

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